When the world’s largest wealth manager becomes as cautious as it is these days, things must be serious. The investment strategists at Blackrock, the New York giant that manages more than ten trillion dollars for its customers, do not want to buy any shares after the massive price declines for the time being. “Valuations have not really improved, the Fed may be overstepping the mark and pressure on profit margins is increasing,” Blackrock Investment Institute experts wrote in a note.
Many stock market professionals share this attitude, there is uncertainty on the markets, prices have been under pressure for months – and the development has become a test for private investors. On Monday, the world’s most important stock market indices fell again significantly, especially in the USA. The S&P 500 fell 3.9 percent, down more than 20 percent since the last high in January, and clearly indicates a so-called bear market, i.e. continuously falling prices. The tech stock index Nasdaq even fell by 4.7 percent. In Germany, where the Dax has lost almost 16 percent since the beginning of the year, things are hardly looking any better.
Inflation and the central banks remain the determining factors
Around the world, market participants are reassessing share prices after they had risen steadily with slight interruptions for more than a decade. Even the corona pandemic, which destroyed supply chains, led to bottlenecks and ultimately fueled inflation, left little impression on the stock exchanges.
That has changed in view of the world situation with a mixture of war, inflation and shortages of goods. The greatest uncertainty factors are currently inflation (almost eight percent in Germany in May) and how the central banks are dealing with it. The US Federal Reserve is meeting this week, and numerous large banks are now expecting that they will raise the key interest rate by 0.75 percentage points, to a range of 1.5 to 1.75 percent: loans are expected to become more expensive and overall economic demand fall so that the price pressure eases. While this is meant to curb inflation, the Fed is taking the risk of a downturn. That weighs heavily on the stock markets, where companies are valued based on their future sales and profits.
The same applies to the cryptocurrency market, which has often been touted as a supposed protection against inflation. The price of the largest digital currency Bitcoin fell to below 22,000 euros and thus to its lowest level since December 2020. This is not really protection against inflation – but it is a good indicator that the time is gradually over when money was very loose on the financial markets, interest rates were at zero and investors’ willingness to take risks was high.
But investors shouldn’t let that worry them. If you still have a long investment period ahead of you, you can actually be happy about lower share prices – and continue to buy diligently. And if you don’t dare, do it like the Blackrock experts: wait, watch and, if in doubt, buy later.
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